Fundamentals of Oil & Gas Accounting 5th Edition by Rebecca Gallun, Charlotte Wright

Exercise 14

Aaron Energy Corporation drilled a successful gas well. Although capable of
production, the well was shut in awaiting the completion of a pipeline. Shut-in royalty
payments of $1,000 per month were paid during the months of June through August.
Assume the following independent cases:
a. The shut-in royalty payments were recoverable from future production. Give the
entry to record payment of the shut-in royalty for June.
b. The shut-in royalty payments were not recoverable from future production. Give the
entry to record payment of the shut-in royalty for June.